Bookkeeping Vs. Accounting Vs. Expense Tracking

One of the most harmful misconceptions found among small business owners relates

to what accountants actually do and the differences between bookkeeping, accounting, and bookkeeping. You can use simple book keeping software for income and expense tracking and then port those numbers over to budgeting software to help make a plan. But at each step, a different set of professional skills could not only be helpful but also worth the investment, depending the business owner's own skills, resources, and goals.

To run a business you need effective bookkeeping, accounting, and budgeting. They usually support one another in that order as well. Bookkeeping is another way to describe data collection, income and expense tracking. Without records of money going out and coming in, you can't do anything. A part-time bookkeeping assistant with decent math and organizational skills can manage a small business' bookkeeping software to take care of all of this as long as you have a system in place that the assistant can follow. Bookkeeping is essential, but it's easy and time consuming, so getting an inexpensive bookkeeper - inexpensive relative to what an accountant would charge to do the same work - that you trust will yield major dividends in the form of more time for the owner to spend of more difficult tasks.

Accounting is what you do with the data and the odds are you can't actually do much yourself unless you are an accountant. Everything from producing profit and loss reports to tracking spending patterns to identifying cash flow falls under the umbrella of accounting, as does maximizing tax deductions and conforming to financial regulations. An accountant may not be a silver bullet for all a small business' problems, but a good one can certainly help eliminate waste and improve efficiency so a business can succeed and grow.

Business owners need the specific information that an accountant can generate from analyzing accounting data. Beyond the value of protecting against dishonesty and mistakes, an owner can't do much with the raw financial data. But a report that clearly shows the biggest expenses and income sources and enables the owner to take concrete steps to improve cash flow or cut costs is immensely valuable. This is also the information necessary to devise useful budgetary plans and business strategies. But the nuances between what is and isn't useful for the running of the business is often lost on people who start small businesses, more problematic because these details suggest different types of valuable financial services.

The simple conclusion is that you should probably get someone to help you with basic expense tracking and bookkeeping, and someone else to take care of your accounting. But while you should let go of control of data collection and analysis, you should maintain a firm hold on understanding that analysis and using it to run your business.

by: John V

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